SYDNEY/WELLINGTON (Reuters) - The Australian and New Zealand dollars faded from four-month highs on Tuesday as speculators took profits on short U.S. dollar positions after several sessions of heavy selling.
The Aussie <AUD=D4> edged back just a touch to $0.7955, having jumped 0.7 percent on Monday to a peak of $0.7979.
The U.S. currency has been under heavy pressure as markets price in the risk of policy tightening in other developed nations. In particular, speculation is growing the European Central Bank will start to slow its asset buying this year.
The Bank of Canada might well hike at its policy meeting on Wednesday, though the strength of its currency may act as a brake given its potential impact on exports.
The Reserve Bank of Australia (RBA) has repeatedly warned that a sustained rise in the local dollar would drag on economic growth, tempering speculation about an early hike in its 1.5 percent cash rate.
While the futures market <0#YIB:> has narrowed the odds of a rate rise this year, a move is still not fully priced in until December with August as a 50-50 shot.
Still, the central bank should have been comforted by a run of upbeat domestic data in recent weeks. The latest ANZ-Roy Morgan index of consumer confidence out on Tuesday showed an increase of 1.2 percent to reach the highest since October 2013.
Notably, the survey's index of current finances rose strongly and this tends to have a better correlation with actual spending patterns than overall sentiment.
"The improvement in confidence this year may be more than just an empty resolution," said ANZ's head of Australian economics, David Plank.
"The improvement in overall economic conditions since September supports our view of solid economic activity in 2018."
Demand for cars seemed to be benefiting, with government data showing sales of new vehicles jumped 4.5 percent in December to a record high.
That was the biggest rise since mid-2012 and offered further evidence that household consumption rebounded in the December quarter.
The New Zealand dollar <NZD=D4> also touched a four-month high overnight at $0.7315, before edging back to $0.7287.
It took a mild knock after a survey by economic think tank NZIER showed business sentiment had dropped to a two-year low in the fourth quarter on pessimism towards the country's new Labour-led government.
Next on the agenda for investors was the second global dairy auction for the year in which prices were expected to hold steady after bouncing in the previous sale.
New Zealand government bonds <0#NZTSY=> eased a fraction, sending yields 0.5 basis points higher along the curve.
Australian government bond futures tested recent lows, with the three-year bond contract <YTTc1> off 3 ticks at 97.785. The 10-year contract <YTCc1> dipped 2.5 ticks to 97.2050.
The government on Tuesday launched a new 2029 benchmark bond to be sold under syndicate, which will test demand for Australian debt as spreads over U.S. yields shrink.
The last sale of longer-term paper drew solid demand, both domestically and from offshore.
(Editing by Sam Holmes)
